With a price-to-earnings (or “P/E”) ratio of 10.1x Genworth Financial, Inc. (NYSE:GNW) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E’s higher than 36x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been pleasing for Genworth Financial as its earnings have risen in spite of the market’s earnings going into reverse. One possibility is that the P/E is low because investors think the company’s earnings are going to fall away like everyone else’s soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Genworth Financial will help you uncover what’s on the horizon.
The only time you’d be truly comfortable seeing a P/E as low as Genworth Financial’s is when the company’s growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 78%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn’t have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 31% per annum during the coming three years according to the only analyst following the company. That’s shaping up to be materially higher than the 13% per year growth forecast for the broader market.
In light of this, it’s peculiar that Genworth Financial’s P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.
We’ve established that Genworth Financial currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
It’s always necessary to consider the ever-present spectre of investment risk. We’ve identified 2 warning signs with Genworth Financial, and understanding them should be part of your investment process.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E’s below 20x.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]
Erin is a sports enthusiast who loves indulging in occasional football matches. She is a passionate journalist who flaunts a perfect hold over the English language. She currently caters her skills for the sports and health section of Report Door.
window._taboola = window._taboola || ;
placement: ‘SIdeBar Article Thumbnails’,
NYSE:KKR, KKR & Co. Inc., Stock
World news – US – Cautious Investors Not Rewarding Genworth Financial, Inc.’s (NYSE:GNW) Performance Completely – Report Door